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Agency Downgrades State
Bond Rating by 1 Level
Change won't affect ongoing construction
By Cleve R. Wootson Jr.
Assistant State & National Editor
As construction funded by the N.C.
Higher Education Bond shifts into high
gear on campuses across the UNC system,
ftiture bond rates might increase because
of a downgrade in the state’s bond rating.
Moody’s Investors Service, one of
three main credit rating agencies,
announced Monday that it had dropped
North Carolina’s bond rating from AAA
to Aal.
“It’s just one step down,” said
Katherine Kirkman, director of public
affairs for the state treasurer. “Aal is still
a strong rating.”
A press release from the N.C.
Department of the State Treasurer said
Moody’s cited the state’s “continued bud
get pressure, its reliance on nonrecurring
revenues, and its weakened balanced
sheets” as reasons for the downgrade.
But legislators are confident that con
tinued efforts to fine-tune the state’s
2002-03 budget will reverse the down
grade.
“If we can get our house in order in
certain areas, we can get our rating back
up,” said Sen. Howard Lee, D-Orange.
Moody’s announcement came as
UNC-system officials were trying to
capitalize on a favorable bond market.
Bonds that already have been issued will
not be affected by the downgrade.
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Officials say the UNC system is cur
rendy spending 14 percent less than was
allocated for projects -a result of low
interest rates and a competitive bidding
market.
Kevin MacNaughton, UNC-system
finance and university property officer,
said the state’s tax revenue, generated in
part by equipment
purchases, salary
taxes and other
bond-related
expenditures,
exceeds the amount
to be repaid on the
bonds - at least for
now.
“The debt ser
vice is actually less
than the tax flow,”
MacNaughton said.
“If we can get our house in
order in certain areas,
we can get our rating
back up. ”
Sen. Howard Lee
D-Orange
Additionally, he said, the construc
tion-related bond “is essentially keeping
the construction industry afloat in North
Carolina.” MacNaughton said any sur
plus will be stored away to account for
inflation or in case there is a construc
tion deficit in the future.
The bonds, approved by a referen
dum vote in November 2000, allocate
$3.1 billion to higher education specifi
cally for construction. Of that, $2.5 bil
lion will go to the UNC system. The
remaining S6OO million will go to state
community colleges.
According to the University of North
Carolina Bond Project Status Overview,
as of July the system had allocated a
total of $591.2 million dollars to design,
construction and land acquisition for
UNC-system schools.
Higher education bonds have been
issued twice since receiving approval -
once in March and once in April.
In April, the state secured a 1.8 per
cent interest rate on the bonds, a rela-
tively low rate
made possible by
the state’s AAA
credit rating.
The Raleigh
based Pope Center
for Higher
Education Policy, a
conservative think
tank, advised law
makers and system
administrators last
week to hold onto bond money until the
state’s budget crisis decreased in severity.
John Sanders, vice president of the
foundation, said, “(The good economic
market) doesn’t take away from the fact
that the state is in a tight fiscal situation
and that every little bit counts.”
But MacNaughton said the system
will capitalize on the favorable price sit
uation while it can - an option that
might fade away as a result of the recent
bond rating downgrade.
The State & National Editor can be
reached at stntdesk@unc.edu.
News
Death Total Rises to 109 in European Floods
The Associated Press
DESSAU, Germany - Floodwaters
from the rain-swollen Elbe River over
whelmed a dike and swamped part of
this east German city Monday, forcing
more evacuations as Europe wrestled
with the aftermath of violent storms that
swept the continent two weeks ago.
German authorities reported three
more deaths Monday, increasing the
Europe-wide toll to 109. European lead
ers also grappled with how to pay for
damages estimated at up to S2O billion
- Germany rescinded a planned tax cut
to help fund its recovery efforts.
High flood ramparts helped
Budapest, the Hungarian capital, escape
largely unscathed as the Danube River
peaked Monday at a historic high.
In the Czech capital, Prague, officials
were inspecting buildings for flood dam
age after three collapsed in recent days.
Thousands of German soldiers and
emergency workers shored up flood
barriers Monday as the swollen Elbe
rolled toward north Germany after forc
ing 80,000 people from their homes.
Dessau residents were the last to grab
their belongings.
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“What I’m wearing is all I’ve got,”
said city councilor Juergen von der
Heydt, who leaned on the wall of a half
submerged restaurant near his home in
suburban Waldersee to catch his breath
while supervising relief efforts.
His home, just over a mile from the city
center and its famed Bauhaus architecture
school, was flooded neck-deep. “I’ve been
up for five days and nights, and I haven’t
managed to rescue anything,” he said.
Military helicopters ferried sandbags
to a dike being built to protect a key
highway linking Berlin and Munich.
Houses designed by the Bauhaus
school’s master architects in Dessau
were considered safe, city spokeswoman
Christina Framke said.
Thousands of emergency workers,
soldiers and volunteers worked nonstop
piling tons of sandbags onto sodden
dikes along the Elbe and Mulde rivers.
Sandbags were scarce, prompting
Denmark to ship 650,000 of them to
help, said the Technical Aid Service, a
German government relief agency.
In Magdeburg, about 40 miles down
stream from Dessau, authorities pre
pared to evacuate up to 20,000 people
as the Elbe’s crest approached.
Tuesday, August 20, 2002
Hundreds were evacuated from villages
farther north in Mecklenburg-Western
Pomerania state.
Weather forecasts for Germany and
central Europe called for dry weather in
the next few days, with scattered show
ers over western Hungary.
Floods have wiped out or severely
damaged scores of roads, rail lines,
bridges, stores and homes in Germany,
Austria, the Czech Republic and Slovakia,
leaving countries with a cleanup and
rebuilding bill estimated at S2O billion.
The German government said it was
delaying next year’s tax cuts until 2004,
which Chancellor Gerhard Schroeder
said would free up $6.8 billion.
The flood-damaged buildings include
Dresden’s famous Zwinger Palace muse
um, where a support wall collapsed
Monday in the basement. The collapse
was not expected to cause serious dam
age, said Martin Roth, managing direc
tor of the state art collections in Dresden.
In Prague, authorities inspected more
buildings damaged by flooding from the
Vltava River. Fifty-eight homes in the
low-lying Karlin neighborhood were
damaged and at least 28 dwellings could
be tom down, officials said.
15A